Bookkeeping

What are the meal/food/etc rules for deductions?

I have clients that eat meals with clients, buy food for all of the employees, and also eat out while traveling or on the go. The rules have gotten very unclear in this area. Can you help me clarify this?

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Answer

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    Pursuant to IRS notice 2018-76, taxpayers may deduct 50% of an otherwise allowable business meal expense if:

    1) The expense is an ordinary and necessary expense under §162(a) paid or incurred during the taxable year in carrying on any trade or business;
    2) The expense is not lavish or extravagant under the circumstances;
    3) The taxpayer, or an employee of the taxpayer, is present at the furnishing of the food or beverages;
    4) The food and beverages are provided to a current or potential business customer, client, consultant, or similar business contact; and
    5) In the case of food and beverages provided during or at an entertainment activity, the food and beverages are purchased separately from the entertainment, or the cost of the food and beverages is stated separately from the cost of the entertainment on one or more bills, invoices, or receipts. The entertainment disallowance rule may not be circumvented through inflating the amount charged for food and beverages.

    Taxpayers may generally deduct 50% of food and beverage expenses associated with operating their trade or business. The concept of a “substantial business discussion” has been eliminated under TCJA. Some examples of what are 50% deductible might include:
    a) snacks and beverages in the coffee room or employee kitchen.
    b) meals consumed while and employee of away on work travel.

    Some examples of what are 100% deductible might include:
    a) Christmas parties primarily for your rank and file employees
    b) Annual picnics primarily for your rank and file employees
    c) Summer outings primarily for your rank and file employees

    For reference, here is the latest guidance on meal & entertainment deductions: https://www.federalregister.gov/documents/2020/10/09/2020-21990/meals-and-entertainment-expenses-under-section-274

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